Note 8 Promissory note
On July 12, 2018, we entered into a Note and Warrant Purchase Agreement (the Purchase Agreement) with two individuals (the
Lenders), one of whom holds in excess of 5.0% of our outstanding common stock. Pursuant to the Purchase Agreement, the Lenders agreed to lend an aggregate of $1,050,000 to us, which was advanced in three tranches on July 12, 2018,
$500,000, August 17, 2018, $300,000 and October 4, 2018, $250,000. The indebtedness is evidenced by secured convertible promissory notes (the Notes) and bears interest at a rate equal to 8.0% per annum. Unless otherwise
converted as described below, the entire outstanding principal balance under the Notes and all accrued interest and fees are due and payable on July 12, 2019.
At any time after to the first to occur of (a) a sale by us of additional Notes or (b) September 12, 2018, the Lenders have the
right to convert all amounts outstanding under the Notes into either (x) shares of our common stock at the conversion rate of $8.00 per share, (y) $500,000 of the indebtedness owed by Exploraciones Oceanicas S. de R. L. de C.V.
(ExO) to Oceanica Marine Operations, S.R.L. (OMO), or (z) a 7.5% interest in Aldama Mining Company, S. de R. L. de C.V. (Aldama). We indirectly hold a controlling interest in ExO; OMO and Aldama are indirect,
wholly owned subsidiaries of ours.
In connection with the issuance and sale of the Notes, we issued warrants to purchase common stock
(the Warrants) to the Lenders. The Lenders may exercise the Warrants to purchase an aggregate of 50,000 shares of our common stock at an exercise price of $12.00 per share. The Warrants are exercisable during the period commencing on the
date on which the Notes are converted into shares of our common stock and ending on July 12, 2021.
Pursuant to a Pledge Agreement,
dated as of July 12, 2018 (the Pledge Agreement), our obligations under the Notes are secured by a pledge of a portion of Odysseys ownership interest in Aldama and another entity.
Pursuant to a Registration Rights Agreement (the Rights Agreement) among us and the Lenders, we granted the Lenders
piggy-back registration rights with respect to the shares of our common stock issuable upon conversion of the Notes and the exercise of the Warrants.
The Purchase Agreement, the Notes, the Warrants, the Pledge Agreement, and the Rights Agreement include representations and warranties and
other covenants, conditions, and other provisions customary for comparable transactions.
We have accounted for this transaction as a
financing transaction, wherein the net proceeds received were allocated to the financial instruments issued. Prior to making the accounting allocation, we evaluated the transaction for proper classification under ASC 480 Distinguishing Liabilities
from Equity (ASC 480), ASC 815 Derivatives and Hedging (ASC 815).
We determined that the debt achieved
conventional convertible status and that the equity conversion option was in the money at inception which required the calculation of a beneficial conversion feature (BCF). The fair value of the warrants and BCF component exceeded the
amount of proceeds, therefore, they were limited to the cash proceeds of $1,050,000 at December 31, 2018. As a result, there was no value allocated to the debt at inception. The debt is being accreted to face value over its term using the
effective interest method. For the twelve months ended December 31, 2018, we recorded $74,621 in interest expense associated with the accretion of the debt discount and the carrying value of the notes at December 31, 2018 was $74,621.
Therefore, the book balance of this debt at December 31, 2018 is $74,621 and the actual face value is $1.05 million. For the twelve months ended December 31, 2018 and 2017, accrued interest in the amount of $33,284 and $0,
respectively, was recorded.
Long-Term Obligation Maturities
:
We do not have any long-term obligations that mature beyond 12 months from December 31, 2018. 2019 is the third year of our three
year corporate headquarter operating lease. We entered into the operating lease with Monaco Financial, LLC, a related party; however, the building in which we lease this space was sold during October 2018 to a
non-affiliate.
The operating lease automatically renews and is cancellable with a nine-month notice.
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